3 major catalyst for markets US CPI, US earnings, covid cases in China. Plus why you can’t ignore Aussie & US dollar vs Yen

What's happening in markets?

Food and energy inflationary signals creep back up again

The Bloomberg Commodity Index up 5% off its 2022 low, fueled by Corn prices rising almost 6% in the Asian session, and Wheat prices rising 6.6% in the American session as demand growth is now back in focus, reminding market participants of lack of supply. Meanwhile Gas prices jump 5.3% as gas supply to Europe is reduced for the next 10 days. We think this issue will likely cause a premium in risk in gas prices this week.

Twitter shares tumble on Musk wanting to terminate takeover. Beware of Titanic legal battle

Elon Musk now officially wants to terminate the $44 billion agreement to buy Twitter (TWTR), which sent its shares 5% lower after hours. This is something we at Saxo expected and wrote about last week. Given Musk might not be making the financial outlay, Tesla (TSLA) gained ~2.3% after hours. However, now a legal battle will be on the cards with Twitter Chairman Bret Taylor reportedly going to take the matter to court this week. If the judge rules against Musk, Elon could be forced to pay $54.20 a share. If the ruling in his Musk’s favour, he might walk away with having to pay a $1 billion breakup fee.

Slim trading in APAC, most markets trade lower. Singapore and Malaysia closed for public holidays

Australia's ASX200 started the trading week in the red, down 0.9% while Japan’s market (NIKKEI) trades up 1%. Also weighing on broad sentiment is that the US jobs report on Friday was stronger than expected, which gives the Fed ammunition to rise rates by 0.75% at its next July meeting. Meanwhile, it also seems optimism is fading on some US tariffs being reduced on Chinese imports into the US, with a decision still being in limbo. However in the ASX session, coal miners lead with New Hope (NHC) and Whitehaven (WHC) up 3% and 2% after coal Newcastle futures rose to new highs. On the downside, tech businesses listed on the ASX bleed heavily with EML Payments (EML) seeing the biggest drop of 21% after its CEO walked

Stocks in mainland China and Hong Kong decline amid worries of Covid-19 outbreaks and new shutdowns

For Sunday July 10, mainland China reported 352 new locally transmitted cases, including 69 cases in Shanghai. After finding the first case of more contagious BA.5 sub-strain of the omicron variant, Shanghai announced for another round of mass testing. Separately, Macao reported 93 bases for Saturday and announced most businesses, including casinos will close for 7 days.  Macao gaming stocks plunged 5% to 6% across the board.  Internet stocks declined following China’s State Administration for Market Regulation fined Alibaba (09988.xhkg) and Tencent (00700.xhkg) for past monopolistic actions. While the amount of the fines were negligible, the actions remined investors about regulatory risks over Chinese internet companies.  Alibaba fell 6% and Tencent declined 3%.  Hang Seng Index (HSI.I), Hang Seng TECH Index (HSTECH.I) and CSI300 (000300.I) lost 2.7%, 3.9% and 2% respectively. 

What to consider?

Fed and ECB moves to be overshadowed by Russia’s next move on Gas

The fate of Europe and the global economy, hinges of the future of Russian gas flows. As per our Saxo Spotlight released today, this weeks focus will be on (US CPI data out Wednesday).Next week will be the ECB and the Fed policy decision the week. But they arguably matter much less to global markets and then if Russia instigates a sudden energy shortage in Europe. As such, we expect the European regions assets to trade with a risk-premium until there is further clarity and developments. The gas pipeline will be turned off for 10-days maintenance. But nervousness remains till the pipeline is turned back on as scheduled. Reprieve came from Canada at the weekend, agreeing to make a sanction exemption to export the key ingredient needed. However the largest overhang is if Russia shuts down its oil exports for a month.

China’s PPI and CPI numbers released on Saturday were broadly in-line 

PPI slowed to 6.1% in June (vs Bloomberg consensus: 6.0%) from 6.4% in May.  CPI rose to 2.5% in June (vs Bloomberg consensus: 2.4%) from 2.1% in May.  In our view, the rise in CPI in China, plus aggressive overseas central bank hiking, will limit the room for the PBoC to cut rates.  The key channel of easing going forward will remain being through urging banks to lend. 

Aussie dollar vs Japanese Yen roars to 7-year highs ahead of key Australian data this week

With divergence between Australia and Japan’s policies get wider, at Saxo, we remain focused on the AUDJPY, which is closely watched by those in Australia and Japan. Today, Japan received another indicator which give the BOJ ammunition to keep rates at record lows. Japanese Machinery orders fell for the first time in three months, which suggests Japanese firms might be delaying spending due to rising energy and costs. In Australia we believe this week, the RBA will gain more ammunition to aggressively rise rates over the coming months. Last week we observed Australian exports surging to a record all-time high. While coal futures pushed higher again in the Asian session today. We see no signs of Australia’s most profitable export (now coal) slowing down, which supports the price of the AUD. This week business confidence data out tomorrow, and consumer confidence out the day after (Wednesday) will be closely watched. But the important unemployment data out on Thursday will be watched like a hawk. June’s unemployment rate is likely to fall to brand new monthly record low of 3.8%, which gives the RBA room to rise rates over 0.5% at its August meeting. This supports the AUD moving higher yet again against the JPY (AUDJPY)

Potential trading and investing ideas to consider?

USD/JPY ready for a fresh two-year high

The USD/JPY may again be the easiest cross to see dollar strength in after several weeks of consolidation. Until mid-June the long USD/JPY was the dollar trade of 2022. But then recessionary risks rose again, which prompted shifts. As mentioned in our Q3 outlook, inflation is the Feds greatest threat right now, which means higher US yields are coming. In such an environment, the yen is typically pressured lower. And this might mean the USDJPY looks it will be favoured again

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